20,000+ New Flats in 2013: Why They Won’t Cool the Resale Market

In Singapore, property doesn’t just defy maths. It straight up gathers every economics textbook, pees on them, then lights them on fire. All the while singing “Unwell” and laughing maniacally. So when the government launches 20,000 + new flats, how do we know property will behave rationally? How do we know it will cool the resale market? The terrifying answer seems to be “We don’t“. Here’s what could go wrong:

20,000+ New Flats in 2013

In case you missed the news:

“SINGAPORE – At least 20,000 new Housing and Development Board (HDB) flats will be built next year, said National Development Minister Khaw Boon Wan on his blog on Monday.

Mr Khaw said the government has made steady progress in ramping up supply and stabilising the housing market, and it wants to keep up the momentum and help more Singaporeans own their own flats“- Channel NewsAsia (August 2012)

In addition, the Special Housing Grant has been extended to three-room flats in non-mature estates.

So, with all the new flats, resale flat prices should fall, correct? At present, the consensus seems to be “probably not”. When I spoke to some property investors, the reasons they gave are:

Eligibility for BTO Flats

Number of New Flats in Mature Estates

Optimism and Capital Gains

Wait Time

Eligibility for BTO Flats

Uh, which page was that requirement on again?

HDB wants to keep public housing fair. Which is a noble cause, even if it results in more conditions than a bomb squad’s insurance.

“Due to the restrictions on who can and can’t buy a BTO flat,” explains property investor Charlie Sng, “it is very difficult to siphon off core demand from the resale market.”

In an e-mail exchange, I received a similar reply from a property agent, who only wants to be known as Marcus:

“Some people cannot buy a BTO flat. In order to qualify, you need to be a Singapore citizen, and another person in your family nucleus must be a Singapore citizen or a PR. Also, singles cannot buy new flats.

I don’t want to get into a discussion about immigration, as that is quite sensitive. But think about it this way: The number of foreigners is high, and they need a place to stay. For some, condos are too expensive, but they also cannot buy BTO. So what choice do they have? They have to go for resale correct?

It doesn’t matter if there are 20,000 new flats if we have, say, 50,000 new people coming in. And none of them can qualify for those flats. The resale market will still have high demand, high prices.”

Number of New Flats in Mature Estates

I’m forfeiting the deposit. The Lor Mee here sucks.

Investor Charlie Sng believes in the hard facts of location:

“What matters most is proximity to schools,public transport, shopping centres, and so forth. It is the resale flats, in mature estates, that have access to these things.

The Singapore mentality is: If I buy BTO, I pay for 30 years*. If I buy resale, I pay for 30 years. May as well I buy resale, even if I pay more. At least I have the amenities. And this is one reason why the demand for resale won’t budge.”

*HDB loan tenures are capped at (65 minus the borrower’s age) or 30 years, whichever is lower.

But hold on a minute. There are BTO flats in mature estates too.

“Yes, correct, and these are the most popular ones,” Charlie says, “But only 5% of BTO flats are in mature estates. And not all of these are the 4-room, 5-room types that Singaporeans want.”

3. Optimism and Capital Gains

Scenic river view some more! +$20,000

Good thing optimism isn’t a disease, because we’d have an epidemic.

Blame it on media hype, high liquidity, or record-breaking sales. But the moment a resale flat went for $1 million, half our property investors decided “reality” is an optional belief.

“There is this sense of invincibility, that property will keep going up without ever coming down,” Marcus mentions in his e-mail, “Some investors are not thinking clearly. They don’t realize that, with a COV of $50,000 or more, they could belucky if some properties appreciates that much in 5 years. Let alone surpass that.”

Marcus also thinks there’s a plague of short-term investors, driving up prices in resale:

“Some investors just want to buy, rent, and sell in five years. When condos became too expensive to play their game, they brought it to the resale market. Okay, I’m an agent so I’m not complaining, it’s money in my pocket. But frankly, this game is unsustainable.”

4. Wait Time

Hey dear, I found the key collection waiting room.

Apply for a BTO flat, and you might be waiting two years for key collection. It’s a conundrum: Pay high rent while waiting, or tolerate the in-laws.

“Rent is very high right now,” Charlie says, “At $2,000 to $3,500 or more a month, almost no one wants to rent for two years. And if they live with one set of parents, there is the issue of space and privacy. It can be quite stressful to some people.”

Charlie believes that “Many resale flat purchases are caused by this long wait time. Also, it might be a mental thing. It’s hard to keep thinking about the financial commitment, when there’s nothing tangible, without feeling upset.”

Still Want Resale?

If you still want resale, brace yourself. Price drops in 2013 might be quite minimal, even if some buyers back off and choose a BTO instead.

At least loan rates are low, so be sure to check out loan comparison sites like MoneySmart. And follow us on Facebook, so we can update you on developments.

I was a freelance writer for over a decade, and covered topics from music to super-contagious foot diseases. I took this job because I believe financial news should be accessible and fun to read. Also, because the assignments don't involve shouting teenagers and debilitating plagues.